Management Accounting of Airbus - Essay Example

? Table of Contents Table of Contents 2 Executive Summary 3 Background 3 Review of Management Accounting 4 Critical Success Factor - Airbus 5 Basis for Airbus’s Management Accounting System 6 Recommendations for Airbus’s Management Accounting System 6 Conclusion & Discussion 8 Bibliography 10 Executive Summary This paper discusses about the company Airbus which is a part of the EADS group. The paper further discusses about management accounting and how management accounting can assist the company’s management to run the company in an effective manner. This paper also recommends key techniques and methods based upon its products, processes, competitors and policies overviews the trends of the civil aircraft manufacturing industry and the strategies followed by Airbus which has made the company successful. Its Critical success factors are looked upon along with the strategies that it has followed over the years to maintain its Market Share in such a competitive industry. Background “Airbus SAS is an aircraft manufacturing subsidiary of EADS, a European aerospace company. Based in Toulouse, France, and with significant activity across Europe, the company produces around half of the world's jet airliners. Some figures about Airbus are that is it’s a global company having 9 engineering design centers, 15 manufacturing sites, 20 languages, 24 hour customer support (365 days a year), 50 flight simulators, 88 nationalities and more than 5,300 aircraft delivered” (Linkedin, Airbus). American airline manufactures were the first ones to produce aircrafts in bulk quantity hence a competitor was required in Europe. As a response, three of the major European countries; France, United Kingdom and Germany joined together and built up the Airbus Industry. This was a government initiative of the above three countries to built up an organization that can give a proper competition to the American Airline Manufacturers such as Boeing, Lockheed, etc. Airbus came up with A300 as their first product; it was later modified to increase passenger capacity to more than 300 passengers and was known as A380. It was clearly evident that it was collaboration of three countries working together. Airbus’s engines were to be manufactured by Rolls Royce. Initially the company had to bear high development costs as their engines were produced by Rolls Royce. The engine designed by Rolls Royce was also facing major difficulties and delays. Gradually, the company has increased its competition by creating modern aircrafts which are dominating the market (Davies, 2001; Airbus - Gathering Clouds, 2008). The Airbus jetliner products line consists of 14 different aircraft models. All these models are diversified with respect to size, specification and capacity (Airbus.com). Review of Management Accounting According to CIMA, Management accounting “is the practical science of value creation within organizations in both the private and public sectors. It combines accounting, finance and management with the leading edge techniques needed to drive successful businesses. Management accountants operate in financial and non-financial roles throughout organizations and carry out all their training and experience requirements within business itself, providing them with a unique insight into how their organizations operate.” (CIMA Official Website) Management accounting, hence, plays a vital role in the success of any organization. It helps in giving an insight to the managers about the problem areas, risk factors and performance determinants which can be controlled by managerial decisions and processes. Critical Success Factor - Airbus Critical Success Factors in an airline manufacturing industry are the passenger capacity that the company has to offer, its performance, the organization’s reputation, etc. Airbus has been a leader in civil aircraft manufacturing for a decade or so in Europe and globally too it is recognized as a market leader along with Boeing, Lockheed, etc. All this is because Airbus has been very good when it comes to innovation; it has always kept a look out for its customer’s requirement and has produced their product accordingly. Innovation is an important reason behind strategic success of any organization. There are many reasons that a company needs to be innovative because the environment is so dynamic that to remain competitive in any industry, an organization should be outward looking i.e. it should accept the reality of constant change and reviews and should always look towards new markets, better designs, new processes, improved quality and increased productivity by breaking through via innovation. Airbus have always been innovative when producing the aircrafts, it has always changed the design of the product either by increasing the passenger capacity or by producing better quality products such as A380 which was a response to the competition that Airbus had faced all along its business tenure by Boeing. Besides this, the company was recently involved in flying the first alternative fuel flight, the flight ran on 60% kerosene and 40% Gas-to-Liquid in the engine. This flight did not reduce the carbon emission but it was sulphur free (Holloway 2008, p. 257). The other thing that makes Airbus in a better market position in the airline industry is the fact that it produces fuel efficient aircrafts and it is because of this reason that the aircrafts deliveries for Airbus are booked till 2012 even when many airline service providers are in need of fuel efficient aircrafts urgently. Basis for Airbus’s Management Accounting System Owing to the importance of innovation given in the airlines industry, it is highly recommended that Airbus uses some more technologically advanced ways to interact with its customers. The manual ticketing and reservation system which require customers to visit the nearest office for their reservations and immediate enquiries is not suggested for Airbus. In order to be competitive and leading in the airlines industry, the use automated management and accounting systems are welcomed. Airbus needs to adopt an automated strategy to perform its management accounting functions, control its expenses and track the revenues. Customers’ satisfaction and ease in acquiring the information about fares, flights, timings and destinations should be given priority when designing a management accounting system for Airbus. Airbus requires complete information with accuracy about the flight timings, aircraft efficiency and conditions, number of passengers in each flight, maintenance expenditure required per flight and so on. The information about the delays, customer complaints regarding the service and/or staff and any other suggestions from the customers is important for the management of airbus. Hence, in order to increase revenues and customer satisfaction, loyalty and trust, Airbus needs to develop a system which tracks the comments of customers and the management takes necessary steps to fill the gap between customer expectations and actual performance of the overall system. Recommendations for Airbus’s Management Accounting System Keeping in view the competition that Airbus is facing, it is difficult to manage the processes adopted at Airbus efficiently. Airbus requires efficiency in the entire infrastructure management while keeping their risk and costs reduced. It requires a management system that helps the company to be time efficient and has the ability of detecting and eliminating any error within the minimum time frame. Besides such time efficiency, the system also needs to help in a reduction in malfunctions reported by their customers. The operations of Airbus are not limited to a single state but are spread on a global scale. The Airbus requires a system where all information is accurately transferred and shared across the functional distributions of the organization as well as the geographical distributions in no time. The need to continuous information transfer and availability in all regions and functional areas direct towards the need of implementing an Enterprise Resource Planning (ERP) system. This management accounting system enables the management to record and share information throughout the organization’s network. This system also provides an ease of formatting data in different ways to answer the needs of the information users inside and outside the organization. ERP software work on the concept of central theme of management accounting which helps in ensuring that the information is accurate, up-to-date and reliable. This system will enable the management to make better decisions as the information misstatement is less probable due to centralized system. Management accounting provides the basis for better decision making which results in improved profitability, efficiency and customer satisfaction. The ERP software are available in modules including accounts receivable, accounts payable, inventory, payroll, revenues and so on. Since, Airbus is a large organization it may acquire a complete package with all modules working together to improve the performance and decision making of the organization (Heisinger 2010, pp. 18-22). Except an automated accounting management system, there is a need for Airbus to continuously asses, review and improve its performance. The realistic standards should be set in order to measure the performance of the system. If the system does not perform in the expected manner, the management should reconsider the system design and operations. The complaints, suggestions and comments of customers must be evaluated in order to maintain customer satisfaction and brilliance of the service. The automated reservation system, computerized transaction system and centralized database of the organization will be helpful in maintaining accuracy of data, ease of transferability and cost-cutting (Hooson, 1987). Since, the airline industry requires higher expenses to be met like aircraft maintenance and larger workforce; automated systems would minimize the costs related to data storage, analysis and management. Moreover, the management information systems today, offer greater flexibility to analyze the data and perform calculation including ratios, comparisons and other arithmetic calculations with greater accuracy. Management accounting software like Airlines Management Information System (AMIS) and those offered by companies like BIS and SAP may be helpful for Airbus. Moreover, Catalina System is a system through which the customers can receive automated responses. Such technologies can be incorporated into the IT of Airbus so that it can further improve their process of database management and customer satisfaction. Conclusion & Discussion More detailed information about the competitors’ strategies to management and information systems could result in better interpretation of Airbus’s requirements of automated information system. The analysis could have been improved by taking the current management system of Airbus and analyzing its success by comparing it to the industry and its competitors. The use of technology and automated systems will require additional costs related to staff training of those systems and software. The analysis of costs and profits associated with automated systems on financial basis are also relevant and could provide a better understanding of the efficiency of the recommended systems. However, the current research data provides a brief overview of the improvements that a leading airline organization like Airbus can adopt to improve performance. In conclusion, information technology has become of prime importance for businesses these days. If the IT of the business is improved upon with the growing pace of the world it can be witnessed that the company would become even more successful. The competitors of Airbus are improving their IT to come in competition with the leading figures in the airline industry. Hence, the integration of automated management information systems will be of greater importance for its success. The management will have more accurate information about customers’ satisfaction level and information about their expectations. Airbus can improve its performance on the basis of the results produced by automated management accounting software on ratios and comparable figures on its profitability, sales, expenses and other costs. Bibliography "Airbus - Gathering Clouds." The Economist. 387. 8585 (2008): 93. Airbus.com, Corporate information, New Standards Together http://www.airbus.com/en/corporate/ CIMA Official Website http://www.cimaglobal.com/Thought-leadership/Newsletters/Insight-e-magazine/Insight-2009/Insight-June-2009/What-is-CIMAs-definition-of-management-accounting/ Davies, CA 2001. Plane Truth: A Private Investigator's Story. Algora. New York. HEISINGER, K. (2010). Essentials of managerial accounting. Mason, OH, Southern-Western Cengage Learning. HOLLOWAY, S. (2008). Straight and level practical airline economics. Aldershot, Ashgate. http://ezproxy.library.arizona.edu/login?url=http://www.myilibrary.com?id=179870. HOOSON, C. (1987). Travel career development. Wellesley, Mass, Institute of Certified Travel Agents. Linkedin, Airbus, Overview. http://www.linkedin.com/companies/airbus Read More